A Merchant Cash Advance for a Virginia Business
A merchant cash advance (MCA) is generally not a loan, but a contract for purchase of future receivables. A merchant cash advance (MCA) funder may agree to accept a certain percentage of deposits until a specified amount is paid. Merchant cash advance contracts generally provide that New York law and courts will govern the contract. A merchant cash advance for a Virginia business is more complex because of a 2022 Virginia statute. The statute governs the state in which a merchant cash advance funder can sue, the clauses a merchant cash advance funder can include in a merchant cash advance contract, and the lawyer most likely to be critical in a conflict between a business and merchant cash advance funder. Virginia statute Chapter 22.1 of Title 6.2 of the Virginia Code covers providers of “sales-based financing“.
It was signed by Governor Youngkin on April 11, 2022, and its disclosure requirements became effective July 1, 2022. The chapter covers sales-based financing providers who make sales-based financing which is repaid from sales or revenue, and sales-based financing providers who make sales-based financing which is repaid with a fixed payment and includes a process for adjusting the amount owed, generally referred to as a ‘true-up‘ or ‘reconciliation‘ process. Most merchant cash advances are covered. Providers and brokers had to register with the State Corporation Commission by November 1, 2022, with a $1,000 registration fee and a $500 annual renewal fee. As of April 2026, 229 providers and brokers have registered. A covered funder must disclose the amount financed, finance charge, total repayment amount, estimated number of payments, fees, any collateral, and broker payment. It does not have to disclose the finance charge as an annual percentage rate.
Must Be Brought in Any Court in Virginia
Section 6.2-2234 is the most important section for the merchant in the event of a dispute. It states the cause of action arising from a covered contract must be brought in any court in Virginia. It voids any provision stating the action must be brought in New York or any other state. If the contract contains a provision requiring a dispute to be resolved through arbitration, then it cannot require an in-person hearing be held outside the area the merchant is located, and the arbitration fees must be paid by the funder. The same section voids “confession-of-judgment” clauses, and similar provisions. Section 6.2-2236 voids any clause in a covered contract that is not in compliance with the chapter as against the merchant. Section 6.2-2238 allows the Virginia Attorney General to bring an action to obtain an injunction, restitution, and attorney fees. The chapter applies to transactions conducted entirely on the Internet.
The Scope of the Virginia Statute
The Virginia statute does not cover transactions with banks and other financial institutions, transactions over $500,000, or to any provider that performs no more than five transactions with any one recipient within a 12-month period. It only applies to a business that is headquartered in Virginia, and contracts entered into before July 2022, when the statute went into effect, may not be covered. So the first question for a Virginia merchant is whether the contract in question falls under the scope of the Virginia statute. Depending on the answer, the New York forum clause will be enforceable or not enforceable.
Usury Defenses
Virginia usury law offers little assistance to business borrowers, even if an MCA is classified as a loan. The statutory limit is 12 percent per year (§ 6.2-303), and a usurious loan can be reduced to principal, with double-interest penalties. But § 6.2-317 prohibits usury defenses on loans of $5,000 or more made for other than personal purposes. Under § 6.2-308, corporations, limited liability companies and other entities are barred from pleading usury altogether. Virginia court decisions are lacking on the question of whether MCAs are disguised loans, though the U.S. Bankruptcy Court for the Western District of Virginia hosted a seminar in 2025 to analyze the issue. The usury battle is often fought in New York courts applying New York law. There, a September 2025 decision by the state’s Second Department (in Apollo Funding) determined that a merchant who never sought reconciliation cannot deem the process illusory. A Brooklyn judge applied Apollo in December 2025 to revive an MCA claim that he had initially rejected as usurious.
Confession-of-judgment Clause
Two caveats to confession-of-judgment clauses for a Virginia merchant:
- (i) As of August 30, 2019, New York amended CPLR 3218 to provide that a confession can only be filed in a county of New York in which the debtor resides. And a business resides wherever in New York it maintains a place of business, so a business from Virginia with no offices in New York can no longer have a confession of judgment entered against it in New York.
- (ii) A Virginia statute invalidates a confession-of-judgment clause for the contracts it covers. A confession of judgment for some other agreement against a Virginia business can be set aside under Virginia Code 8.01-433, upon a motion made within 21 days after notice and alleging any defense or setoff which would be available in a regular lawsuit.
Filed in Any One of Three Courts
Also, a suit against a Virginia business by an MCA can be filed in any one of three courts. There still are MCA suits in New York state court against businesses relying on old or otherwise exempt MCA agreements, or even some covered agreements, under the forum selection provision. But, new MCA agreements subject to Chapter 22.1 must be filed in Virginia state court. There still is federal jurisdiction, however, if parties are of diverse citizenship and there is greater than $75,000 at stake. In Virginia, that means the Eastern District with bankruptcy offices in Alexandria, Norfolk, Newport News, and Richmond, or the Western District with bankruptcy offices in Roanoke, Lynchburg, and Harrisonburg.
Foreign Judgments Act
Merely obtaining a judgment in New York is not enough if the money is in a Virginia bank. Virginia’s Uniform Enforcement of Foreign Judgments Act requires the funder to file an authenticated copy of the judgment in the office of the clerk of any circuit court, along with an affidavit showing the merchant’s last known address. Notice is mailed to the merchant by the clerk and the judgment is as valid as if it were entered in a Virginia circuit court. Collection of the judgment is to be stayed by the court if there is an appeal or stay pending in New York and the proper security has been posted or any ground for staying a judgment from a Virginia court exists. Va. Code § 8.01-465.4. To recover, the funder files a suggestion of garnishment under § 8.01-511 and serves the summons first on the bank and then the merchant. The bank examines the account for automatic exemptions.
Lawyer of the Day
Who is the lawyer of the day in MCA contracts signed by a business in Virginia? If the contract is Chapter 22.1 and the funder has sued in Virginia, then for purposes of that case, the lawyer of the day is a lawyer licensed in Virginia, because the case is in Virginia.
If the contract is exempt or was signed prior to July 2022 and the funder has sued in New York, then your lawyer of the day is a New York lawyer. The New York lawyer will assert New York usury law and defects in service and also argue that the Virginia venue rule prohibits the suit to the extent it applies. A New York default judgment can only be challenged in New York.
A Virginia lawyer steps back into the game after the New York judgment has been domesticated in a Virginia circuit court, or after a bank garnishment notice. That lawyer would seek to stay or claim exemptions, or contest the domestication. A bankruptcy lawyer is really the first option if a business has a number of advances, since filing in the Eastern or Western District freezes all collection. If the advance agreement has not yet been sued on and the business can still make some payments, then a negotiator who knows the funders may be a better route to settling an advance more quickly than either lawyer. This is especially true if the advance agreement is covered, so an out-of-state venue or confession clause doesn’t give the funder any real leverage.
